Thursday, September 21, 2017

Bad News for Workers = Worsening Economic News!

Popular Economics Weekly

Personal incomes have been increasing just 2.5 percent on average for several
years. But that doesn't boost GDP growth enough to pay down the $10
trillion in worldwide debt that’s been issued since 2008 to get us out of the
Great Recession. We need at last 3 percent GDP growth, which is closer to the long term average; or raise taxes, which this administration won't do.

So where have all the profits gone that were generated since 2009 for
corporate execs and their stockholders? Executive Pay Watch, in a report
conducted by the American Federation of Labor and Congress of Industrial
Organizations (AFL-CIO). Last year, CEOs were paid 335 times the average worker.
The average production and non-supervisory worker earned $37,600 annually in
2016. “When adjusted for inflation, the average wage has remained stagnant for
50 years,” the report said.

That’s not a formula that will pay down the $10 trillion accumulated since
2009 by central banks. The conundrum is why so much debt with so
little economic growth, and the US at near full employment? With the Federal
Reserve finally becoming serious about selling some of its $4.5 billion hoard of
excess reserves, we could see a serious slump in economic growth coming.

“When looking for the next financial crisis, it’s hard to escape from the
fact that we’re seemingly in the early stages of the ‘great unwind’ of global
monetary stimulus at the same time as global debt remains at all-time highs
following an increase over the past decade—at the government level at
least—which has been unparalleled in peacetime history,” wrote Deutsche Bank
strategists led by Jim Reid in an 88-page study entitled, “The Next Financial
Crisis,” and cited by Marketwatch.

Why? Interest rates will finally begin to rise (i.e., less money in
circulation), and less money also means credit tightening when weak household
income growth has already stretched budgets.

A recent employer survey tells us exactly why personal incomes haven’t grown
with corporate profits; still at record levels as a percentage of GDP.
Corporations have been able to successfully resist their employees’ demands for
higher wages. The top 1 percent have garnered 96 percent of all income generated
since the Great Recession, since most of their profits have come from cheap money printed by the central banks. It has only enriched the banks and Wall Street, in other words.

Marketwatch reported on the Aon survey, recently: “Pay raises for U.S.
employees are not expected to improve next year, according to a survey released
Monday by global professional services company Aon, based on a survey of over
1,000 companies. Base pay is expected to rise 3 percent in 2018, up slightly
from 2.9 percent in 2017. Spending on variable pay — incentives or bonuses — will be
12.5 percent of payroll, low levels not seen since 2013. This suggests a
“pessimistic view of corporate performance in the coming year,” Ken
Abosch, a strategy and development analyst at Aon, said in a statement.

Ah, but not for the CEOs of these companies that have used most of those
profits to buy back their stock, and so enhance their earnings. CEO pay spiked
19.6 percent last year, before inflation.
The median total compensation for CEOs at S&P 500 companies totaled $11.5
million last year, an 8.5 percent increase from the previous year and the
largest increase since 2013, according
to a joint report by the Associated Press and the executive pay data firm
Equilar released earlier this year.

So, we could be seeing a growth slowdown next year, or worse, unless we can
reverse the huge redistribution of wealth that has occurred since 2009. But that
would mean raising the nationwide minimum wage from its current $7.25/hour, last
set in the 1990's, for starters.

And, then stopping the Trump administration and Republican congress from
cutting taxes of the already wealthy, and cutting spending that supports the
poorest and elderly in the new tax and budget proposals.

Their most blatant attempt to increase their profits further, while hurting those in most need, has been the repeated
attempts to repeal Obamacare (another tax cut for them). Otherwise, all that
stimulus has gone for naught, and we could see this Great Recession turn into
another Great Depression.

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Harlan Russell Green, Editor/Publisher

Harlan Green is a Mortgage Broker in Santa Barbara, California since the 1980s and economist. As Editor/Publisher of PopularEconomics.com, he has published 3 weekly columns-- Popular Economics Weekly, Financial FAQs, and The Mortgage Corner-since 2000, and is a featured business columnist for Huffington Post. Please refer to the populareconomics.com website for further information.